Challenges and Trends Shaping the Future of Law Firms

Featured on 6/01/19 in Contra Costa Lawyer

It’s an exciting time to be practicing law in the San Francisco Bay Area! Law firms are grappling with several challenges, while exploiting trends to meet the challenges and shape the future of law firms across the nation.

Top Three Strategic Challenges

Law firms are dealing with three strategic challenges that are shaping the future of law firms.

Privately-Funded Companies

You are probably familiar with Alternative Legal Service Providers (ALSPs) such as Axiom and UnitedLex. You also likely know about Legal Publishers (LegalZoom, Avvo, RocketLawyer). They are privately funded companies with seasoned management teams. Although they currently target clients who may not be good clients for many law firms in Contra Costa County, they have ambitions to reshape the legal industry on a global scale. Meanwhile, they serve as sources of clients for many attorneys who are starting their own firms.

Productivity Lag and Rising Costs

Dramatic productivity improvements have been seen across many industries over the past decade, allowing companies to drive down prices without sacrificing (and sometimes improving) quality. The legal industry, however, has not significantly improved productivity. Clio’s 2017 Legal Trends Report found that attorneys typically bill only two hours per day. The remainder of the time is spent elsewhere, including administrative tasks (48%) and business development (33%).

The productivity issue is compounded by the rising costs of operating in the Bay Area: rent, compliance, and compensation specifically. In response to rising costs, law firms raise fees. This means that clients pay more for the same services, creating the opportunity that is being exploited by ALSPs and Legal Publishers.

Law Firm Succession and the Multi-Generational Melting Pot

Many law firms have aging partners who will be retiring in the next two to five years. Unfortunately, most of the firms are not prepared for the future exit of these partners. Often, the firm must utilize outside advisors (succession plan experts, law firm strategists, etc.) to move forward.

There are several potential issues:

The junior partners cannot afford to buy out the senior partners.
The senior partners do not want to cede control to the junior partners.
The senior partners have no junior partners to succeed them, either because they cannot keep their talent or because they haven’t sought them out.

Complicating the succession planning effort is the multi-generational melting pot:baby boomers, Generation X, millennials (i.e. Gen Y), and Gen Z. Each of these generations has differing motivations and approaches. A law firm that works well for baby boomers is not likely to be appealing to Gen Y or Gen Z. The generational differences make it difficult to attract and retain the best talent and the best successors.

Trends Rise to Meet the Challenges

Challenges create trends. The trends in this article address three areas: cost reduction, productivity, and growth.

Cost Reduction Trends

Law firms are increasingly leveraging remote employees, both full-time and part-time. Remote employees can save on rent expenses as well as labor costs. Legal marketplaces such as Hire an Esquire and Lawyer Exchange make it easier for law firms to locate qualified talent elsewhere.

Alternative dispute resolution such as mediation is rapidly gaining popularity as a less costly, more appropriate alternative to traditional methods in certain situations.

Productivity Trends

Law firms are adopting technology more quickly. Practice management software, for example, is becoming a “de facto” requirement for law firms of all sizes.

The next step is the application of artificial intelligence/ machine learning to the practice of law. These software tools speed up the time it takes to gather, review, and analyze different aspects of data, allowing attorneys to spend more time on substantive tasks.

Typically, losing an employee hurts the firm’s productivity. Firms are finding that they need to change their culture to attract and retain millennial and Gen Z talent. The new culture typically emphasizes results over office hours, flexible work policies, work-life balance, and opportunities for professional growth. The firms that adopt these traits find that they attract and retain high quality talent, which in turn leads to a tremendous productivity improvement.

Growth Trends

Marketing has never been a more powerful force in the field of law than it is today. The firms with the strongest marketing have unmatched reach and presence. They command a premium for their services and attract the best talent. The firms with weak marketing get the leftovers.

The reason for this is the internet. As more clients move to the internet to seek out an attorney, a firm’s online marketing acumen will increasingly dictate its growth potential. We see this in personal injury, criminal defense, and family law, and it is rapidly spreading.

Closely related to online marketing is the rise of thought leadership.

Thought leaders are recognized experts in their niches. These people are the Super Lawyers, the Avvo contributors, the YouTubers, the authors and speakers. They are the people who focus on niches and sub-niches. Potential clients and referral sources will have unprecedented access to thought leaders. Thought leaders will leverage online strategies and technologies to build dominant national or international practices within their niches.

The last trend is value-based pricing. Value-based pricing is often misunderstood. It’s a powerful methodology, usually flat-fee based that prices the services based on its worth to the client, not on how much it costs to deliver the service. Law firms that adopt value-based pricing enjoy several strategic benefits. Value-based pricing will reach into every aspect of law over the next few years, because clients want it. Law firms that get it right will have a significant advantage over the others.

Future Steps

The future of law is bright. I’m particularly excited by the improved quality of life that attorneys will experience. Law firms will need to change to survive. They should be looking at three things: